TC Global Insights

Future of Industry

What’s the Future of the Hospitality Industry?

In a world where words like social distancing and contact-less define the way we live, hospitality seems to have little room. Holidays, travel and eating out seem now seem like out of the world experiences, ones that we thought nothing of till a few months ago. No surprise then that the hospitality industry is one of the worst impacted by the pandemic.

But just what is the extent of this damage? And what will the new normal look like—especially for restaurants and hotels in a world wary of close contact and anything shared?

We take a look here.

Pandemics and inhospitable hospitality

The food business has always been a tricky one—especially restaurants, which have extremely high fixed costs. This means that regardless of the number of customers visiting for each meal, the rent expenses, salaries, and other miscellaneous costs must still be incurred. Even as the economy moves into “unlock”, there isn’t much optimism in the sector.

In India, there are several challenges faced by the restaurants with the strict guidelines they need to follow. The general sense of wariness aside, regulations ensuring that all places are closed by 9 or 10 pm are compounding the woes created by the rules placing a 50% limit on capacity and prohibiting the sale of alcohol. We are potentially looking at the closure of at least 30%, possibly 35% of all restaurants—terrifying figures for a sector that employs 7.3 million people. Over just the past hundred days, India’s restaurant industry has lost an estimated one lakh crore rupees.

What doesn't kill you makes you stronger

Restauranteurs are finding innovative solutions to keep themselves in the game. With the “relatively safe” tag associated with the delivery and take-out of food, several restaurants are gearing toward giving customers exactly that. Branching even further beyond traditional delivery, some restaurants are delivering DIY cocktail kits as well as complete Meal Kits across all major cities. This way, consumers can recreate their favorite (instagramable) restaurant experiences while reassured by the safety standards of their own home.

As for the new normal in this business, technology may have a central role to play. To reduce the risk of infection, mask-sporting-waiters will probably ask you to look at the digital menu or place an order through an app (we’re already experts). In an already competitive industry, food safety and hygiene will be the biggest differentiator amongst competitors. The savvier consumers are now going to expect only the best quality ingredients in their food, and restaurants need to become smarter with their menus and streamline their options. However, they must price their dishes carefully as the general ability to spend in the economy is continuously declining. Above all, we can expect the creation of several cloud or virtual kitchens (delivery-only restaurants). With considerably lower fixed costs and capital required, these kitchens are efficient not only in maintaining large margins, but also in delivering hygienically packed meals—which is what the world is currently craving.

What of the hotels?

With travelling almost at a complete halt, the hotel industry is amongst the most critical victims of the virus. McKinsey predicts that it may be 2023 by the time the industry can start functioning at pre-COVID levels. Today, high vacancy levels plague hotels across the globe—barring the designated quarantine centers. The Indian industry is no exception, the revenue per available room has declined by almost 50%, with the revenue contraction expected to persist to 90% within this year. Returning to any kind of normal for most hotels remains contingent on the advent of a cure or vaccine, both expected further down the horizon.

It is interesting to note, however, that not all accommodation is expected to suffer the same fate. Larger hotels face greater challenges as they may no longer be able to provide the several luxury services—exclusive gyms, mini-bars, central air-conditioning, butler services, in-house massages etc.—that earlier set them apart. In fact, their sheer size may be seen as a disadvantage by several travelers who wish to steer clear of crowds. Instead, smaller bed & breakfasts, boutique hotels and homestays (the kind offered by Airbnb) may become more attractive. These units are usually isolated or only have the capacity to host ten guests at a time. Moreover, the lack of common leisure spaces or centrally connected vents makes guests even more secure. Early evidence to support this may lie in the fact that smaller and economy hotels have had consistently higher occupation rates than larger chains, which bear significantly higher fixed and operating costs. Moreover, people who are looking to get out of their homes, but not onto a plane are resorting to home-stays and short-term rentals.

Despite this glimmer of hope for the future, Airbnb is definitely suffering in the present. It had to reduce its workforce by 25%, take on more debt, and its valuation felt to half its 2017 value. One thing is for sure—the longer the pandemic persists, the more these businesses will bleed, because unlike restaurants, there aren’t too many alternative services they can offer.

The new hotels – smarter, but any better?

As the time passes, hotels are preparing themselves to cater to he vast array of expectations that will be laid upon them when travel does resume. In the initial period, they may just open a few rooms for guest-use. Beginning from the check-in process, there is an effort to minimize human interaction and contact. The idea is that guests check-in via a app, that ideally should also act as the key to their room, and head straight to a carefully sanitized room. Bars and restaurants will be inaccessible, so pre-packaged meals may be available in food dispensers on every floor or contactless room service will take place.

Undoubtedly, like in numerous other sectors, technology and AI are set to be a large part of new normal for the hotel industry. There is also large potential for the role of robots—to clean rooms, deliver room service or any other items to guests’ rooms. For those looking to travel soon—be warned—a robot may welcome you with sanitizer instead of a drink. And if this idea is still hard to digest, it’s because humans will always remain at the heart hospitality.

Date added
09.07.2020

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Future of Industry

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